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Market orders are the simplest and fastest way to execute a trade. With a market order, the trade is executed immediately at the currently quoted bid or offer. Market orders to buy deal on the quoted offer and market orders to sell deal on the quoted bid. For example, say that GBP/USD is currently quoted at 1.8329/1.8333. A trader who expects the British pound to strengthen against the U.S. dollar can buy a mini contract (i.e. 10,000 British pounds) using a market order. This order would be filled at the offer of 1.8333. If the trader expected the British pound to weaken, then he would sell a mini contract using a market order. This order would be filled at the bid of 1.8329. In other markets, such as the futures market, a trader never knows the price at which a market order is executed until after the fill is reported. In the FOREX market, though, a trader can see current bids and offers and this, then, greatly eliminates the uncertainty of the fill price. This is an advantage of the FOREX market. Stop orders are most often used as a risk management tool to close a position if prices move adversely. Unlike a market order which is executed immediately, a stop order is contingent on the price. In other words, a stop order is only executed when the current bid or offer reaches a specific stop price as set by the trader. Stop orders to buy deal on the quoted offer and must be set at a price that is above the current offer. Stop orders to sell deal on the quoted bid and must be set at a price that is below the current bid. Stop orders are assumed to be good-till-cancelled meaning that they will operate day after day until filled or until they are cancelled by the trader. For example, say that a trader who believes that the British pound will strengthen against the U.S. dollar has just bought a mini contract at 1.8333. If the British pound weakens, the trader will lose money. The trader wants to limit loss to $65. Since every pip (minimum price fluctuation) of this mini contract is worth $1, the trader will enter a stop order to sell one GBP/USD mini contract at 1.8268. Now, if the GBP/USD bid ever drops to 1.8268, then the stop order will be filled and this will close the British pound position. Let's look at a stop order to buy. Say that a trader who believes that the British pound will weaken against the U.S. dollar has just sold a mini contract at 1.8329. If the British pound strengthens, the trader will lose money. The trader wants to limit loss to $65. Since every pip is worth $1, the trader will enter a stop order to buy one GBP/USD mini contract at 1.8394. Now, if the GBP/USD offer ever rises to 1.8394, then the stop order will be filled and this will close the British pound position. Limit orders are used when the trader wants to buy at a price that is below the current offer, or sell at a price that is above the current bid. Like the stop order, a limit order is contingent on the price. In other words, a limit order is only executed when the current bid or offer reaches a specific limit price as set by the trader. Limit orders to buy deal on the quoted offer and must be set at a price that is below the current offer. Limit orders to sell deal on the quoted bid and must be set at a price that is above the current bid. Limit orders are assumed to be good-till-cancelled meaning that they will operate day after day until filled or until they are cancelled by the trader. For example, say that a trader who believes that the British pound will strengthen against the U.S. dollar has just bought a mini contract at 1.8333. If the British pound strengthens, the trader will earn profit. The trader wants to close the trade if profit reaches $100. Since every pip of this mini contract is worth $1, the trader will enter a limit order to sell one GBP/USD mini contract at 1.8433. Now, if the GBP/USD bid ever rises to 1.8433, then the limit order will be filled and this will close the British pound position. There is, of course, no guarantee that the British pound will increase so, to be safe, the trader should also enter a stop order to cap loss as was described in "Using Stop Orders". With both the limit and stop order in place, the trader can sit back and watch what happens. As soon as one of these orders is filled - either the stop or the limit - then the other order must be cancelled by the trader. Let's look at a limit order to buy. Say that a trader who believes that the British pound will weaken against the U.S. dollar has just sold a mini contract at 1.8329. If the British pound weakens, the trader will earn profit. The trader wants to close the trade if profit reaches $100. Since every pip is worth $1, the trader will enter a limit order to buy one GBP/USD mini contract at 1.8229. Now, if the GBP/USD offer ever drops to 1.8229 then the limit order will be filled and this will close the British pound position. Once again, there is no guarantee that the British pound will fall so, to be safe, the trader should also enter a stop order to cap loss as was described in "Using Stop Orders". With both the limit and stop order in place, the trader can sit back and watch what happens. As soon as one of these orders is filled - either the stop or the limit - then the other order must be cancelled by the trader. In the spot FOREX market, trades must be settled in two business days. For example, if a trader sells 100,000 Euros on Tuesday, then the trader must deliver 100,000 Euros on Thursday, unless the position is rolled over. As a service to customers, all open FOREX positions at the end of the day (5:00 PM New York time) are automatically rolled over to the next settlement date. Roll over involves exchanging the expiring position for a position expiring the following settlement date. The positions being exchanged are not valued at the same price. If a trader is long the currency bearing the higher interest rate, the position "being sold" is worth more than the position being acquired. The reverse is also true; if a trader is short the currency bearing the higher interest rate, then the trader is acquiring a position worth more than the one "being sold". The amount of the difference varies based on the currency pair, the interest rate differential between the two currencies, and fluctuates day to day. At 5:00 PM each day, funds are subtracted from or added to accounts with open positions because of this automatic roll over. On Wednesdays, the amount added or subtracted to an account as a result of rolling over a position is three times the usual amount. This "3-Day" rollover accounts for settlement of trades through the weekend period. When there are bank holidays in either settlement country the normal roll schedule does not apply. The roll over adjustment in the FOREX market is simply the accounting of the cost-of-carry on a day-to-day basis. In fact, in the demo account, you will see the roll charge or premium stated under a section called 'cost of carry'. To avoid a roll over, the trader can close all positions by 5:00 PM New York time.
Disclaimer - I am not a commodity trading advisor. The information on this site is for trading education only. There are no trading recommendations for any one individual made on this site and this information is paper trades for trading education. All trades are extemely risky and only risk capital should be used when trading. U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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